Driver of Gold and Silver prices

Many people who are currently holding PM bullion are doing so in expectation of future price increases. If you subscribe to the idea that PM's are moving higher from present levels, what will be the driver? One potential driver could be inflation. Attached is a link to an article written by The Wall Street Journal's Brett Arends who lays out his take on US inflation.

http://online.wsj.com/article/SB10001424052748704013604576104351050317610.html

What are your thoughts??

 

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Good article. Trillions of USD have been created out of thin air in the last 2 years. More than we'll ever truly know because a lot of it is "off the books" and behind The Fed's big curtain. The real concern to me is not inflation (this year anyway) but another major event in the U.S. or the world that brings us down off our money printing machine.

We got out of the economic crisis this time by flooding the economy with cash, a luxury the strong USD allowed. We won't be so lucky next time and next time could be sooner than you think.

Buy silver.

 

So...Fish, you're buying silver, and one might infer from your post, but just to be clear what do you see as the primary driver(s)?

 

At the start of the gold and silver bull market, the driver was simply that the price of the metals had fallen below the cost of production. How many things could you buy at prices cheaper than the 1970s?

After that, the "early adopters" jumped in because they could see silver inventories shrinking while demand rose.

The next phase above $30 will either have to be driven by a Comex silver shortage and possible delivery default, or by investor speculation [which are closely related].

All of the stories about inflation, debt, the Fed, etc... are interesting reading but aren't really the drivers. Maybe the will become drivers someday, but right now it's just filler for the business section of the newspaper. If I was 100% convinced of high rates of inflation, I would go to cash [with some PM holdings to balance it], wait for the inevitable market drop when the inflation became apparent, then purchase companies with high and growing earnings that don't require a lot of capital infusions to grow. That's the way you beat inflation.

 

As Fishy mentioned, there has been so much printing of new money, that is to me one of the biggest drivers. Money, as a medium of exchange, is a representation of goods and services. When the amount of money increases without also increasing those goods and services, the natural adjustment is that those goods and services will go up in price because the amount of money representing them is greater. Think of it like a pie chart. Your slice of pie is always the same percentage of the whole, but the value of that slice depends on the size of the pie. The counterpoint to this is that any money already in your pocket is of less value.

Since demand is down due to the job market a lot of prices have remained down to keep commerce flowing, but with metals there is another factor - the love/fear trade. People buy metals as a safe haven when things are tough, and when things are good they like a little bling. So no matter the situation there is going to be some level of support.

My last driver is that, other than the anomaly in 1980, gold has fairly steadily risen ever since before the Civil War (of course there are ups and downs). The difference between then and now is that the ride upward has been more gradual as opposed to a spike out of the blue.

Historically, the gold/silver ratio in the barter days was between 12/1 and 20/1. So I will always choose silver over gold until that ratio comes down, but I think both will continue working their way up until Fed policy reverses.

 

Yes, buying silver. Although I've only bought about 50 ounces since prices went past $25/oz. Primary driver is an out-of-control and corrupt U.S. government that is printing trillions of USD (thus devaluing it) to support the equity markets. We are defacto bankrupt but hold the keys to the printing presses of the world's reserve currency. At least for now. Our problems are every bit as big as they were 2 years ago but covered with a thick blanket of greenbacks.

P.S. That's what's driving me to buy! Overall? Asian markets are huge right now, combined with the USD dropping. The JP Morgan/COMEX silver scam is another.

 

Money being printed off the books?! If nobody but insiders know, how do you know? Fox news spreads some silly stuff, but even they aren't this brazen.
Guy

 

You're joking right? You know The Fed does not allow it's books to be audited and never has.....wonder why?

 

Supposedly they open the books up after 180 days so as not to influence policy making, but I haven't heard much since HR1207 was passed.

 

Watch crude prices

 

The usual... futures, physical, ETFs...and eventually widespread public participation along with the probable use of leverage. It's human nature to jump on the bandwagon in search of riches. Silver and gold look like they are going to be the next bandwagon. It is happening now with bonds, happened a few years ago with real estate and the tech bubble in the 90s. It seems to be following the same pattern with the precious metals.

 

A little cryptic. Does that mean you think the price of crude will drive metals?

 

Howdy all,

Inflation, as measured by the CPI, is such a fraud. I love shadowstats.com. Hedonic adjustments. If the product is new and improved and therefore you're receiving more for your money, any price increase doesn't count and indeed, if it's the same price, they subtract that from the basket. Ok, that makes sense. However, when I bought my 2005 Montanta to replace my 2000, I had to pay $5K more for things I didn't want. But I rec'd my vehicle for my money. Yes, but I was not able to buy one without the 'new and improved'. Fully 50% of the basket of goods/services is subject to hedonic adjustments.

And a lot of the CPI is consumer oriented. TVs, PCs, etc. I'd like to see real stuff added up: food, energy, health care, drugs, education - real stuff that folks have to have.

As for the drivers for gold and silver - silver is similar but has a stronger industrial demand aspect. Should the economy recover and the developing world continue to develop, silver will be working as will the Noble Sisters - platinum and palladium. Gold has the savehaven edge over silver although this is starting to disappear at these prices as silver starts to become more of a 'poor man's gold'. I'm still overweighting silver relative to gold and mining stocks relative to bullion. I've been following the gold/silver ratio for too long and while it may or may be historically accurate, lots of folks believe it to be true and adjust their investments accordingly. BTW, it feels like the correction is over for now so I bought some SIL today. It's an ETF that owns global silver mining stocks.

And so it goes,

peace,

rono

 

Yep, I also love shadow stats and yes, CPI is totally contrived. Interesting point on hedonic adjustments; it is my understaning that it only works one way. If the price goes up by 20% and the quality goes up 30%, the price of the item is said to actually drop by 10%. However, if the price remains the same but the quality goes down (or your seat on the airliner gets smaller) there is no upward adjustment. What a farce! Makes you wonder what conditions will be like if they are ever able to actually find any significant inflation. Keep stacking. The price seems high right now but when silver is upwards of $40 we'll be bragging about our $28 silver! Did I mention that I like ShadowStats.com?

Regards,

Bluesboy65

 

Maybe not as much as it will drive inflation. Metals should climb as a hedge. IMHO

 

I may sell before $40 ? Not decided yet.

 

You may want to consider that rising oil prices are NOT inflationary. By themselves, they are deflationary. The Fed's reaction to rising oil prices determines whether or not there will be inflation. Rising prices are not inflation. Prices rise because of inflation. It's important to understand and more than semantics.

 

All I can say is that when gas was 35c a gallon, my house cost 18k and my brand new truck 1400 off the lot. When the prices shot upward after the formation of OPEC, things went wild. Hey, that's what happened as I lived it anyway.

gary

 

Prices rose because the Fed monetized the energy price increase. If they didn't, the price of everything else except energy would have fallen and economic activity would have dropped. In the 70's they referred to it as "recycling petrodollars."